Study Finds B-School Rankings Matter To MBA Salaries

Perhaps no academic activity has been more roundly assailed during the past two decades than scholarly research at business schools. Business scholarship, its many critics contend, has become overly theoretical and largely irrelevant to real-world management — so much so that one much-cited article in the Harvard Business Review charged that “relevance is often systematically expunged from these [scholarly] journals.”

Is this large body of scholarly research as irrelevant to success in the business world as its critics claim? A new study–“Does Business School Research Add Economic Value for Students?”–contends not. The paper, in the current issue of Academy of Management Learning and Education, concludes that “the level of scholarly research activity at business schools appears to add considerable economic value to MBA students’ future salaries.”

How much added value? As much as 21%, according to the report, which was co-authored by Jonathan P. O’Brien of Rensselaer Polytechnic Institute, Paul L. Drnevich and Craig E. Armstrong of the University of Alabama, and T. Russell Crook of the University of Tennessee. Given that the average salary of MBAs from the top 100 schools three years post-graduation is about $115,000, the researchers estimate that the salary premium resulting from an optimal research program amounts to about $24,000 per year.

But here’s the most interesting part. It turns out that the returns to students are much higher if they go to a highly ranked business schools with a big budget–the likes of Harvard, Stanford, Wharton, Columbia, Chicago, and Kellogg, among others. The largest increases in salary, the study found, occur at top 50 schools with big budgets. Comments Prof. O’Brien: “Our results suggest that, all else being equal, MBAs from tier-1 schools (top 50) average about 27% more salary per year than those from tier-3 schools, and that MBAs from top-budget schools earn about 30% more than those from schools with average budgets. The 21% premium from an optimal research program may fall short of those numbers, but it certainly compares favorably to them.”

In an interview, O’Brien said that a student is “going to get more value from a tier-one school than any other. On average, you certainly would be better off. Research productivity is not as important but it’s up there and not far off.”

“This result,” they write, “strongly suggests that research-intensive schools generally do a superior job in helping their students acquire and hone their knowledge, skills, and abilities, which pays financial returns to the students through their future employment…One might conclude that the actual state of the relevance of business school research is not nearly as dire as …some have suggested.”

Of course, almost all of the major business schools emphasize scholarship. It would be impossible to recruit talented faculty to a school that did not award professors for academic research. But there is a big difference between research that is more directly pragmatic versus research that has little if any use at all to business professionals. Harvard Business School and the University of Virginia’s Darden School probably do the most “applied research.” Most other business schools, including Columbia and Chicago, put far greater emphasis on “theoretical research.”

Both BusinessWeek and The Financial Times attempt to measure a school’s intellectual output in their rankings of MBA programs (see story on “Ranking B-Schools on Intellectual Capital.”) These studies, however, include more practitioner oriented publications, such as the Harvard Business Review. This academic study largely took into account the research that results in scholarly articles in academic journals that very few practicing managers ever see or read. The authors concede that their study doesn’t “directly address whether business schools could have added even more value for their students if they emphasized practical relevance (in research and teaching) over rigorous theory-driven scholarly research.”

Even so, the study found that research isn’t always an unmitigated blessing. At some point the law of diminishing returns kicks in, and the relationship between additional research and post-graduation salaries becomes negative. The authors suggest that, “if a school places an excessive focus on research…faculty will invest relatively less effort in teaching and students outcomes will suffer.” But this apparent surfeit of research occurred only in about 20 schools in the study’s sample of 658 — that is, those in the top three percentile of scholarly productivity — and even there graduates enjoy a salary premium absent from schools in which there is no research.

The findings derive from an analysis of the relationship of research productivity at American and other business schools and the salaries of MBAs three years after receiving their degrees — specifically, the percentage increase over what they earned before enrolling in business school. The salary data were obtained in the period 2001 through 2008 by the Financial Times as part of its annual ranking of the top business schools worldwide. The professors focused on salaries three years after graduation, as opposed to MBA starting salaries, because they reasoned that the former were “more reflective of the value of the knowledge, skills, and abilities provided by the business school education.”

Data on research productivity were obtained from a social science citation index for the eight years coinciding with the period the post-MBAs were enrolled in business schools. The professors tabulated the number of publications in 254 journals for faculty of 658 schools (82% from the US) belonging to the Association to Advance Collegiate Schools of Business. Each school was assigned three measures of research productivity — number of publications per full-time faculty member in A-publications (the 40 scholarly journals with the highest impact ratings); in B-publications (the 80 journals ranked from 41 to 120 in impact); and in C-publications (all remaining scholarly journals).

The investigators were at pains to separate the possible effects of research productivity from those of other factors that are likely to influence post-MBA salaries, such as schools’ reputations and schools’ financial resources. To control for the latter the researchers employed a measure of schools’ operating budgets per full-time faculty member, and to control for the former they divided the schools into three tiers — tier 1 consisting of the top 50 schools in the FT rankings, tier 2 consisting of the schools ranked 51 to 100, and tier 3 consisting of all other schools.

Analysis revealed that the amount of faculty research in both A- and B-journals was significantly related to post-MBA salaries and that, all else being equal, faculty publication in both was associated with substantially higher salaries than those earned by graduates from the 25% of the schools in the sample that produced no published research at all. In the words of the report, “Student salaries [three years post-MBA] maximize at 0.15 A-publications and .08 B-publications per full-time faculty member per year, which produces a predicted annual increase in student salary of about 21%. Conversely, 0.23 A-publications and zero B-publications produce a predicted increase of just 7.3%. This suggests that a moderately broad view of academic scholarship, which can theoretically encompass a wider array of new (and sometimes even more radical) ideas, pays dividends to students.”

As to why scholarly research that is so often criticized for lacking practical value should have such a pronounced effect on post-graduation salaries, the professors surmise that “even if an individual faculty member’s own research has little relevance to practice, being actively engaged in research helps faculty keep abreast of, and involved with, cutting-edge knowledge developments in the field…Active engagement in knowledge creation through research, as opposed to simply teaching from textbooks and educational materials that others write, may help faculty hone their analytical skills and consequently emphasize a more rigorous approach to problem solving…[that] might resonate with students and [help them] make better decisions once they complete their programs.”